Friday, January 31, 2014

Monopoly power in all its forms--in our system, crony capitalism and its partner, the neofeudal state--enables theft on a systemic scale.If a monopoly forces its customers to pay more for low-quality goods and services because they have no choice, how is that not theft?If the Mafia raises the price of "protection" on small businesses (another case of monopoly and no other choice), how is that extortion not theft?When a local government raises junk fees to fund its cronies' excessive (i.e. non-market-rate) salaries and pensions, how is that monopoly power to extort more money from those with no other choice any different from Mafia extortion/theft?If a pharmaceutical company extends a patent on a costly medication by changing the dosage slightly, how is that not theft via regulatory capture? If a government contractor charges the Pentagon $1,000 for a hammer (all those overhead charges, tsk-tsk--lobbying corrupt politicos costs a lot, you know), how is that not theft of taxpayers' money?When the Federal Reserve drops the yield on savings to near-zero to funnel all that stolen wealth to its cronies on Wall Street, how is that not theft?Monopoly power in all its forms--in our system, crony capitalism and its partner, the neofeudal state--enables theft on a systemic scale. When crony capitalism and the state are essentially one system, the propaganda organs of the state and mainstream corporate media combine to persuade the stripmined populace that their theft is not theft, it's "capitalism and democracy at work." This is known as The Big Lie. What we have is systemic theft, predation and exploitation.Calling things what they really are would upset the apple cart of systemic exploitation.Let's Call Things What They Really Are in 2014 (January 15, 2014)Correspondent Jeff W. explains that all this systemic theft is inherently deflationary:

All forms of stealing are deflationary. Stealing cuts into the average citizen’s disposable income, it reduces how much he can buy. Because there are now fewer dollars chasing more goods, deflation is the inevitable result. Stealing is actually worse than a zero-sum game. Society loses more than the thief takes. In addition to losses from theft, a victim often has to spend more on security measures. Theft also has a chilling effect on capital investment and commerce in general.

Consider how many different kinds of theft the American citizen is exposed to: street crime, sickcare industry ripoffs, legal system ripoffs including huge fines for traffic violations, high taxes, interest earnings on his savings that amount to ZIRP, a corporatist state determined to suppress his wages by any means necessary, unending victimization at the hands of predators enabled and protected by the state. If he owns a small business, he has to deal with a corrupt regulatory state, higher taxes, and an enlarged menagerie of predators. Today there are thieves everywhere.

So one big deflation trend is theft. As theft increases, deflation increases. As society collapses and thieves start roaming freely all over the landscape, a deflationary collapse can be expected—absent a determined and persistent campaign of money printing.

Exhibit A for the case that stealing is deflationary is the Dark Ages.Stealing was rampant in the Dark Ages. How did people react to that? By “going medieval.” They wore clothing that made them look poor so as to avoid attracting the attention of thieves. Their dwellings looked poor for the same reason. If they had cash, they would bury it in the ground; no one could be trusted. Unless one was an insider who could get protection from the state, no one’s property was safe.

Capital investments were much too risky, and out of the question. What were the price characteristics of the Dark Ages? Wages were low. Real estate valuations low. Prices of manufactured items (such as they were) were low. Only food was expensive. People can cut back on clothing and shelter, but there is a limit to how much they can cut back on food. In the Dark Ages, people really hunkered down and just focused on basic survival.

Exhibit B is Detroit. Detroit for many years has been a high crime area, i.e. it had lots of thieves running around. What are the price characteristics of Detroit? Wages low. Real estate valuations low. There is very little manufacturing being done inside the city limits today because of high property taxes and crime. There is also very little capital investment for the same reasons.

There is a vicious circle at work here. 1) Thieves control the government; 2) Which results in increased stealing; 3) Deflation results from that; 4) Which gives the thieves a reason to print money and give it to themselves; 5) Which enriches the thieves some more; 6) Which gives them more resources they can use to consolidate their control of the government; 7) Back to step 1.

Many people seem confused about how there could be deflation in the paper (or digital) money era. If they would recognize how much stealing is going on, and if they understood the powerful deflationary effect of stealing, then perhaps they would not be so surprised to observe price decreases, particularly in wages and the prices of manufactured products.

Thank you, Jeff, for explaining the causal connection between systemic theft and deflation. To all those terrified of deflation (for example, central bankers and their cronies holding trillions of dollars in phantom assets and illusory collateral), the solution is obvious: get rid of systemic theft. But since those terrified of deflation are at the top of the monopoly-power thievery pyramid, that is asking the impossible: for the thieves to relinquish their power to steal.

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Thursday, January 30, 2014

Here's the global financial crisis in a nutshell: access to easy credit can solve a temporary liquidity problem, but it can't increase the value of collateral or generate income.The Chinese culture has a wonderful vocabulary of colorful analogies and metaphors, and today's title refers to the typhoon of liquidity (freely available credit) that has flooded the global economy for the past five years.The source of the phrase is Liu Chuanzhi, the Chairman of Lenovo and the iconic figure of Chinese manufacturing. When asked a few years ago why 60% of Lenovo Group’s profit came from asset investment and only 40% came from manufacturing. He said “when the typhoons come, even a pig can fly in the sky. Everybody is profiteering from this. Why can’t we?”The typhoon in this case is China's credit/liquidity-driven real estate speculative frenzy, in which the only losers are those who don't borrow to the hilt in the shadow banking system and buy, buy, buy empty flats in vacant buildings.The critical distinction to make about typhoons of credit-driven speculation (in China, Japan, the U.S., Europe, etc.) is between liquidity and valuation.Let's take a household as an example to explain the difference. Say the household owns a $300,000 house with a $150,000 mortgage. The household has home equity of $150,000.Let's say one of the household loses their job and the sole remaining income is not enough to pay the monthly bills. This is a liquidity crisis. The household could borrow money based on the collateral of the home equity to tide them over until the second worker finds a new job.A valuation crisis is different: let's say the household decides to sell the house and discovers the market value is only $150,000--the same as the mortgage. After deducting the real estate transaction costs, the household has negative equity. So instead, the owners claim the house is worth $250,000 and try to get a home equity line of credit to solve their income/liquidity crisis.Here's the global financial crisis in a nutshell: access to easy credit can solve a temporary liquidity problem, but it can't increase the value of collateral or generate income. The owner can misrepresent the value of the asset to borrow money based on phantom collateral, but that doesn't change the market value of the underlying asset or increase the income needed to make loan payments.Simply put, credit/liquidity cannot solve valuation/collateral crises. Correspondent J.B. recently addressed this issue:

"RE: accounting and real life. Sometimes they differ but over the long run they always synch up. For instance let's say a bank has a lot of quality assets but a liquidity issue. It will take that good paper to the Fed to get liquidity for the bank to get through the hard time (no write down required and it works out). On the other hand if the bank has a bunch of bad assets, it now has a solvency issue and not a liquidity issue (i.e. not marking to market does not agree with reality). Sure if CRE goes bad it can postpone marking it to market for a while but soon it has no cashflow and accounting does not matter because it cannot pay its bills, payroll or redeem demand deposits. The failure to properly mark assets to market will not save it and ultimately accounting and reality will re-synch."

The world's central banks and governments have tried for the past five years to fix a valuation/collateral/income crisis with liquidity. No wonder they've failed--enabling insolvent owners to borrow more money doesn't make the borrowers any less insolvent.Once the liquidity typhoon dies down, the insolvent pigs will plummet back to earth. That's what we're seeing in the periphery economies and shadow banking systems around the world.

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Wednesday, January 29, 2014

The Central State and its core directives, central planning and ever-widening control of every aspect of life, is eroding the human essential: community.Rather than the rah-rah phoniness of the President's State of the Union speech,which was predictably filled with Soaring Rhetoric (tm) and promises of more central planning and state expansion, let's consider the real state of the union.Two related truths are self-evident: that community is essential to human progress, communication, development and well-being, and that the current global systems of the central state (socialism) and cartel-state capitalism (capitalism) actively dismantle community.These basics inform the view that the only way forward is a community-based economy that recognizes and restores community as the foundation of human life.On the most fundamental survival level, if humans were isolated, solitary hunter-gatherers, humans would likely have gone extinct long ago, as we simply aren't as capable as our competitors. If the species did endure, it would be equivalent to other solitary Great Apes--small in number and isolated to small pockets where it could survive.Our dominance ("success" if you prefer) as a species flows directly from our social nature and the development of ways to spread better techniques, i.e. knowledge and cooperation, via spoken and eventually written language.Yes, opposable thumbs boosted our toolmaking abilities and year-round fertility boosted our reproduction rates, but these advantages would be marginal were we a species of isolated individuals. Indeed, the fundamentals of sociobiology support the notion that human longevity results partly from the genetic advantages bestowed by grandparents, i.e. a generation of elders who can aid in child-rearing and serve as a repository for experiential knowledge/wisdom that would be lost to short-lived species.In our current system, the impersonal state replaces the core value created by participating in community with welfare checks; there is no need to bother cooperating and working with others once the state provides the basics of life.A similiar dynamic is implicit in corporate capitalism, which assumes that large corporations dedicated to pursuing profit wherever such profits might be greatest can successfully replace communities with corporate "communities" of workers and supervisors.In The Strange Disappearance of Cooperation in America (submitted by correspondent Cheryl A.), The author proposes that social cooperation waxes and wanes with wealth inequality: as inequality rises, so too does polarization. People become less cooperative and socially engaged as polarization increases.The correlation between loss of community and wealth inequality is only the first step. This sociological perspective misses the political point, which is the structure of our centralized state-dominated economy leads to both wealth inequality and the loss of community from the same dynamic: the substitution of the state/corporation as the organizing/controlling structure for society, displacing community.Want to Reduce Income/Wealth Inequality? Abolish the Engine of Inequality, the Federal Reserve (January 28, 2014)Our state-cartel system creates aimless armies of unemployed people who receive just enough from the state that the incentive to rebel is eroded, but this does not fill the gap left by the destruction of community with anything positive or fulfilling: it simply maintains the void via bribery.The entire notion that corporations pursuing maximization of profit for their shareholders can organize society to benefit everyone is nonsensical; how could organizations dedicated to reaping profits replace multi-layered communities that meet needs that cannot necessarily be commoditized for a profit?Longtime correspondent Bart D. cogently summed up these issues:

"When boiled down to real world conditions, for a society and economy to operate sustainably and successfully, people have to do things for and with each other, and BE SEEN to be doing it.

From an evolutionary perspective a community would form the basis of the economy in which individuals lived their lives. Each participant would have known, in social terms, every other participant to some degree.In such a ‘traditional’ system, individual participants were heavily incentivised to be valued by others. Being valued for your good works and deeds increased your chances of having other individuals help you out when you were individually unable to support yourself for some reason (sickness, old age, personal disaster).

In economies of small and local scale you really strived to have others feel they owed you something based purely on their sense of fairness and conscience, because people interacted economically and socially with the same people. This creates a pool of good will that functions as ‘social security’ (This has since been transmuted into the Frankenstein of ‘debt’ and ‘taxes’ both of which are grudging rather than volunteered.)

That type of interaction has been and is continuing to be eroded away in the modern economic system that seeks desperately to separate social relationships from economic relationships.

Thus we have the disconnect between small business taxpayers and welfare recipients that sets up the perfect conditions for corporatocracy and the bizarre ever-expanding debt economic models of the west.

What the architects of these current systems have lost sight of is that the illusion they created by pumping free credit into the system only works on some parts of the economic system and at the cost of GREATLY undermining the social component of the system."

"Now, there is another kind of altruism that seems to go beyond that, a kind of super-altruism, which humans appear to have. And I think that does need a Darwinian explanation. I would offer something like this: We, in our ancestral past, lived in small bands or clans, which fostered kin altruism and reciprocal altruism, because in these small bands, each individual was most likely to be surrounded by relatives and individuals who he was going to meet again and again in his life. And so the rule of thumb based into the brain by natural selection would not have been, Be nice to your kin and be nice to potential reciprocators. It would have been, Be nice to everybody, because everybody would have been included."

This is not to suggest there isn't a role for the state and profit-seeking organizations in society or the economy; it is simply to state the obvious that the wholesale replacement of community by the state has eroded an essential of human life that cannot be filled by impersonal states and corporations. States and corporations cannot "fix" what's broken with the model of state-cartel capitalism/socialism because the model itself is the problem.

This essay was drawn from Musings Report 46 (2013), one of the weekly reports sent exclusively to subscribers and major contributors (i.e. those who contribute $50 or more annually).

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Monday, January 27, 2014

The Federal Reserve is the primary obstacle to reducing income/wealth inequality. Those who support the Fed are supporting a neofeudal arrangement that widens the income/wealth gap by its very existence.

The issue of income/wealth inequality is finally moving into the mainstream: which is to say, politicos of every ideological stripe now feel obliged to bleat platitudes and express cardboard "concern" for the plight of the non-millionaires with whom they personally have little contact.I have addressed the complex causes of rising income/wealth inequality for years.Indeed, my book Why Things Are Falling Apart and What We Can Do About It is largely about this very issue.Here is a selection of the dozens of entries I have written about rising income/wealth inequality.Income Inequality in the U.S. (August 22, 2008)Made in U.S.A.: Wealth Inequality (July 15, 2011)Let's Pretend Financialization Hasn't Killed the Economy (March 8, 2012)Income Disparity and Education (September 26, 2013)Is America's Social Contract Broken? (July 17, 2013)Rising Inequality and Poverty: Can They Be Fixed? (August 15, 2013)How Cheap Credit Fuels Income/Wealth Inequality (May 30, 2013)Why Is Debt the Source of Income Inequality and Serfdom? It's the Interest, Baby(November 27, 2013)While many key drivers of declining income are structural and not "fixable" with conventional policies (globalization of labor and the "end of work" replacement of human labor by robots, automation and software, to name the two most important ones), the financial policies that create wealth/income inequality are made right here in the U.S.A. by the Federal Reserve.We should start addressing wealth/income inequality by eliminating the primary source of wealth/income inequality in the U.S.: the Federal Reserve.The Fed generates wealth/income inequality in three basic ways:1. Zero-interest rates (ZIRP) and limitless liquidity creates cheap credit that enables the super-wealthy to buy rentier income streams that increase their wealth.The closer one is to this gargantuan flood of "free money for cronies," the wealthier one can become by borrowing from the Fed for near-zero and buying assets that yield returns well above zero. If your speculative bet goes bad, the Fed will bail you out.2. Zero-interest rates (ZIRP) and limitless liquidity feeds financialization, broadly speaking, the commoditization of debt and debt instruments. The process of commoditizing (securitizing) every loan or debt greatly increases the income and wealth of the financial sector and the state (government), which reaps higher taxes from skyrocketing financial profits, bubbles and rising asset values (love those higher property taxes, baby!).There is no persuasive evidence that cheap credit enables legitimate wealth creation, while there is abundant evidence that cheap credit fuels speculation, credit bubbles and a variety of financier schemes and scams that create temporary phantom wealth for crony capitalists and impoverishes everyone who wasn't in on the scam.The housing bubble was not just a credit bubble; it was a credit bubble enabled by the securitization/financialization of the primary household asset, the home.Those closest to the Fed-enabled flow of credit reaped the gains of this financialization (or were subsequently bailed out by the Fed after the bubble burst), while the households that believed the Fed's shuck-and-jive ("There is no bubble") suffered losses when the bubble popped.This chart of income inequality depicts the correlation between the Fed's easy-money credit expansion and the extraordinary increase in income inequality.Please note the causal relation between income and wealth; though it is certainly possible to squander one's entire income, those households with large incomes tend to acquire financial wealth. Those with access to cheap credit are able to buy income-producing assets that add to their wealth.Financialization is most readily manifested in the FIRE sectors: finance, insurance, real estate.You can see the results of financialization in financial profits, which soared in the era of securitization, shadow banking, asset bubbles and loosened or ignored regulation:Here's how cheap, abundant credit--supposedly the key engine of growth, according to the Federal Reserve--massively increases wealth inequality:the wealthy have much greater access to credit than the non-wealthy, and they use this vastly greater credit to buy productive assets that generate income streams that increase their income and wealth.As their income and wealth increase, their debt loads decline.The family home is supposed to be a store of wealth, but the financialization of housing and changing demographics have mooted that traditional assumption; the home may rise in yet another bubble or crash in another bubble bust. It is no longer a safe store of value, it is a debt-based gamble that is very easy to lose.Credit has rendered even the upper-income middle class family debt-serfs, while credit has greatly increased the opportunities for the wealthy to buy rentier income streams. Credit used to purchase unproductive consumption creates debt-serfdom; credit used to buy rentier assets adds to wealth and income. Unfortunately the average household does not have access to the credit required to buy productive assets; only the wealthy possess that perquisite.The Fed's Solution to Income Stagnation: Make Everyone a Speculator (January 24, 2014)As a direct result of Fed policy, the rich get richer and everyone else gets poorer.3. But that isn't the end of the destructive consequences of Fed policy: the Federal Reserve has also created a neofeudal society in which debt enslaves the masses and enriches the financial Elites.Put another way, not all wealth is created equally. Compare Steve Jobs, who became a billionaire by developing and selling "insanely great" mass-market technologies that people willingly buy because it enhances their lives, with a crony-capitalist who reaps billions in profits from risky carry trades funded by the Fed's free-money-for-cronies policy or by selling phantom assets (mortgages, for example) to the Fed at a price far above market value.Clearly, there is a distinction between those two fortunes: one created value, employment for thousands of people, and tremendous technological leverage for millions of ordinary people. The other enriched a handful of financiers. This financial wealth could not be conjured into existence and skimmed by Elites without the Federal Reserve.This Fed-enabled financial wealth destroys democracy and free markets when it buys the machinery of governance. To the best of my knowledge, Jobs spent little of his time or wealth lobbying Big Government for favors, special laws eliminating competitors with regulatory hurdles, etc.Compare that to the millions spent by the "too big to fail" banking industry to buy Congressional approval of their cartel's grip on the nation's throat: Buying Off Washington To Kill Financial "Reform".Much of the debate about wealth inequality focuses on whether the super-wealthy are "paying their fair share" of the nation's taxes. If we refer to the point above, we see that as long as the super-wealthy can buy the machinery of governance, then they will never allow themselves to be taxed like regular tax donkeys.Unfortunately, only the top 1/10th of 1% can "afford" this kind of Fed-funded "democracy." As of 2007, the bottom 80% of American households held a mere 7% of these financial assets, while the top 1% held 42.7%, the top 5% holds 72% and the top 10% held fully 83%.The income of the top 5% soared during Fed-enabled credit bubbles:Since all these distortions originate from the Fed, the only solution is to abolish the Fed. Those who have absorbed the ceaseless propaganda believe that an economy needs a central bank to create money and manage interest rates.This is simply wrong. The U.S. Treasury (a branch of government actually described by the Constitution, unlike the Fed) could print money just as it borrows money. Should a liquidity crisis squeeze rates higher, the Treasury has the means to create liquidity and make it available to the legitimate financial system.All the Fed's regulatory powers were power-grabbed from legitimate government agencies defined by the Constitution.The Federal Reserve is the primary engine of income/wealth inequality in the U.S.Eliminate "free money for cronies," bailouts of the "too big to fail" banks that own the Fed, manipulation of markets, the purchase of impaired private assets at high prices, and all the other tools of financialization the Fed wields to enforce its grip on the nation's throat--in other words, abolish the Fed--and the neofeudal structure that feeds inequality will vanish along with the feudal lords that enforced it.We don't need to "fix" things as much as remove the obstacles that are blocking the way forward. The Federal Reserve is the primary obstacle to reducing income/wealth inequality. Those who support the Fed are supporting a neofeudal arrangement that widens the income/wealth gap by its very existence.

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Sunday, January 26, 2014

The forest (the economy) can only remain vibrant and healthy if the dead wood is burned off in bankruptcy and insolvency. Retail commercial real estate is over-built and over-leveraged. If it is allowed to burn off as Nature intended, we can finally move forward.Last week I suggested that Retail-CRE (Commercial Real Estate) would be The First Domino to Fall in the domestic U.S. economy. The reason is simple supply and demand: for a variety of structural reasons, there is an enormous oversupply of retail commercial space and an ever-declining demand for bricks-n-mortar commercial space.I laid all this out in a three-part series last week:Dead Mall Syndrome: The Self-Reinforcing Death Spiral of Retail (January 22, 2014)The First Domino to Fall: Retail-CRE (Commercial Real Estate) (January 21, 2014)After Seven Lean Years, Part 2: US Commercial Real Estate: The Present Position and Future Prospects (January 20, 2014)I've prepared a graphic depiction of dominoes falling that depicts the causal chain:1. Standard-Issue Financial Pundits (SIFP) underestimate the CRE implosion, just as they underestimated the domino-like consequence of subprime residential mortgages blowing up in 2007-2008.2. Few grasp how over-leveraged CRE is, so the "surprise" will be considerable, i.e. the shock-and-awe of malls being recognized as near-worthless will be outsized.3. Occupancy and lease rates plummet in retail, resorts and office space.4. These dynamics (fewer leases and lower lease rates) push leveraged owners of CRE into bankrupty.(Recall that rolling over existing mortgages doesn't increase dwindling cash flow.)5. The Fed may want to add $1 trillion in impaired commercial real estate mortgages to its bloated $4 trillion balance sheet, but the bond market may question yet another open-ended bailout of the Fed's cronies, i.e. the banks who foolishly lent monumental sums against marginal commercial properties.6. The lenders foolish enough to leverage loans against phantom collateral fail as $1+ trillion in CRE loans default.7. The "recovery" in the U.S. economy is revealed as just another fiction sold as fact by the Fed, the political Status Quo, the organs of Federal propaganda, etc. (The Recent "New High" in Stocks Is as Bogus as the Unemployment Rate January 25, 2014)Here's the key issue at stake: propping up failed private enterprises with Fed or Federal money throws up roadblocks to the real growth of our economy. Rather than bail out more banks and save over-valued, over-leveraged mall owners from the consequences of the economy changing, we should be casting off what's been holding the economy back--phantom assets, debt that should be written off and failed financial sectors bailed out with taxpayer funds and Fed trickery.The question shouldn't be could the Fed bail out the imploding retail-commercial real estate (CRE) sector? but should the Fed bail out the imploding retail-CRE sector?We may as well ask if the Fed should have bailed out the buggy whip industry in 1914. The retail-CRE sector is imploding for a very good reason: speculators built way too much space with way too much credit and leverage supplied by banks emboldened by the notion that the Fed will never let crony-capitalists suffer the consequences of their insanely risky bets.On top of that cheap-credited-fueled over-building, Web shopping and the systemic decline in household income for the bottom 90% (please look at the income charts in The First Domino to Fall) have undercut the need for ever-more commercial real estate space.In any economy with the slightest bit of free enterprise still left breathing, the retail CRE sector would be allowed to go bankrupt and all those exposed to the risks (mall owners, banks with CRE loans, etc.) would absorb the losses. Anything less than the creative destruction of a failed sector that time has passed by will impede the economy in terribly negative ways.Yes, the Fed can print up another $1 trillion and buy every CRE loan that's worth $1 for $1 million and bury the defaulted loan away from public view. But should it be allowed to do so? Should the Fed's role of savior of every crony-capitalist in America who loses a leveraged bet go unchallenged?Should the Fed end up owning every dead mall in America so the owners and lenders can be cashed out at a fat profit? Janet Yellen, the Nation's New Chief Slumlord (January 9, 2014)Should the Fed be allowed free rein to bail out its owners (private banks) and crony capitalists with limitless newly created money? Is that what the U.S. is all about now, bailing out failed speculative bets by crony capitalists and banks? Most commentators believe the Fed has a totally free hand to create as much money as it wants whenever it wants and to use those funds to bail out banks and speculators by buying their defaulted mortgages and hiding them away in the Fed balance sheet.But I believe the political resistance to this neofeudal arrangement is rising, and the Fed's ability to bail out crony capitalists and banks is not as infinite as its supporters believe. The bond market might start pricing in negative consequences to the Fed floating yet another $1+ trillion bailout of super-wealthy cronies.Maybe the public will finally tire of yet more bailouts of the super-wealthy and their failed sectors and failed bets. Maybe the Nation's New Chief Slumlord, Janet Yellen, will hesitate to pursue Ben Bernanke's policy of bailing out every failed crony capitalist regardless of the costs to the nation's economy and the injustice of backstopping foolish risks made for private gain."It can't happen here" includes the Fed. The average SIFP (Standard-Issue Financial Pundit) believes the Fed is politically unconstrained as a matter of unquestioned fact, on the order of a belief in a Cargo Cultish quasi-religion such as Keynesian "stimulus." (Wow, Paul Krugman can really dance the humba-humba and wave a dead chicken!)Just as it turns out "it can happen here" (runaway central state suppression, spying, etc.), the Fed can encounter political limits on its Grand Plan of bailing out every crony capitalist in America.Maybe we should let the retail CRE sector go the way of the buggy whip manufacturers instead of bailing out every super-wealthy crony involved in the orgy of over-building and over-leverage. The forest (the economy) can only remain vibrant and healthy if the dead wood is burned off in bankruptcy and insolvency. One of the biggest pile of dead wood in the U.S. is retail-CRE. If it is allowed to burn off as Nature intended, we can finally start moving forward.

A sincere thank-you to the 88 readers who responded to One Blogger's Story About Money (January 18, 2014) by subscribing or contributing to the site. Your kind support is greatly appreciated.

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

Saturday, January 25, 2014

This is what happens when the Status Quo is incapable of reforming itself or recognizing reality: propaganda and bogus statistics are substituted for actual solutions.The most heavily touted statistical "proofs" that the U.S. economy is "recovering" and "growing" are the unemployment rate and the stock market. Both are completely bogus. Yes, bogus, as in phony, wrong, rigged, misleading, carefully crafted propaganda.Earlier this month, we showed that In Terms of Real Stuff, the Dow's "New High" Is Pure Illusion (January 6, 2014). Another way of adjusting the nominal new high to reality is to adjust it for inflation, as measured by the producer price index (PPI) or the consumer price index (CPI). If we adjust for inflation, we find that the recent new highs are considerably lower than the stock market peak reached in 2000:Simply put, "new highs" in the stock market are statistical sleight-of-hand. By any practical, real-world measure, the SPX is worth significantly less adjusted dollars in 2014 compared to the real peak in 2000.Equally bogus is the unemployment rate, which has magically declined for years.You probably know this already, but it bears repeating: the unemployment rate is calculated by counting the labor force and those with a job of some sort--temporary, part-time, whatever.If you slash the labor force down to the number of people with a job of any kind, presto-magico, the unemployment rate goes to zero. This is precisely what the Status Quo is doing: the number of people counted as in the labor force is plummeting. Even if the number of people with jobs is declining, as long as the number of people in the labor force is declining at a faster rate, eventually you get "full employment," i.e. zero unemployment.Gamed in such a fashion, an economy in a full-blown depression can sport an unemployment rate of near-zero. That's precisely where we're heading. Here are the three charts that show this. I've drawn in trendlines so the future decline in the unemployment rate is easily predictable.Here's the unemployment rate. If the downtrend continues (and it will, as long as the participation rate keeps going down), the unemployment rate will soon be 3%, regardless of how many people have full-time jobs they can live on.The participation rate (percentage of the population in the labor force) will soon be at levels last seen when the typical household only had one employed adult:Those not in the labor force will soon equal the number of people with full-time jobs (around 115 million):This is what happens when the Status Quo is incapable of reforming itself or recognizing reality: propaganda and bogus statistics are substituted for actual solutions.

A sincere thank-you to the 68 readers who responded to One Blogger's Story About Money (January 18, 2014) by subscribing or contributing to the site. Your kind support is greatly appreciated.

The Nearly Free University and The Emerging Economy:The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.

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